Waiting for the Big One: The Economics of Plaintiff-Side Personal Injury Litigation

Abstract

Contingency fees are a matter of intense public concern, but little is known about the economics of plaintiff-side personal injury litigation. We obtained data on payouts, fees, and expenses for all cases settled over an extended period by three plaintiff-side personal injury firms, one in Texas, one in Illinois, and one in a state we cannot disclose. We study the economics of plaintiff-side personal injury litigation, and estimate the effects of statutory caps on contingency fees. Fees vary from 0% to 34%, but the modal fee is one-third of the recovery. A one-third fee is not uniformly collected ex post even when it is explicitly contracted for ex ante: when recoveries are low, plaintiffs’ attorneys often reduce or waive their fee. Mean per-case litigation-related expenses were 5.1% (Il firm) and 5.6% (Tx firm). In prior work with Texas data, we found that defense-side fees and expenses increased over time. Although expenses increased at all three firms over time, fees as a percentage of recoveries decreased modestly at the Texas firm, and were stable at the Illinois firm. Analysis continues on the expenses and fees at the 3rd firm. At all three firms, an overwhelming percentage of total fees comes from a small number of cases. The top 10% (1%) of cases are responsible for 67% (23%) of total fees for the Illinois firm; 82% (55%) of total fees for the Texas firm; 43.5% (15%) for 3rd firm cases handled internally, and 67% (30%) of 3rd firm cases referred elsewhere. Cases with modest fees may help to keep the lights on, but the blockbuster cases are what keep plaintiffs’ attorneys in this line of work. Statutory restrictions on contingency fees vary in severity, but have the potential to significantly change the economics of plaintiff-side representation.